Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

The problem basically is that we have been dealing with two issues—the GDP outlook and the inflation outlook. We have defined our balance of risks in a manner that any acceleration in GDP growth would of necessity increase the rate of inflation and vice versa. Now it’s very obvious that that economic model is flawed badly. As I will suggest as I expand on Vincent’s remarks, I believe the way to handle this is to unbundle the two issues and deal with them separately and at the end weight them for a conclusion. That strikes me as a solution, though not necessarily the only or even the best solution. At the end of the day it may leave members with the conclusion that the simplest thing to do is to bury the whole idea and forget it. I don’t think that’s the right way to go because I do believe we can convey information about our outlook. But the form that we’ve been using recently to do so essentially assumes a predetermined relationship, which is that stronger economic growth creates inflation and vice versa. That’s based on a very simple model. But the real world doesn’t seem to want to conform to that model, and that is creating very substantial explanatory difficulties for us.

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